BLOG:  Digital Financial Reporting

This is a blog for information relating to digital financial reporting.  It is for innovators and early adopters who are ushering in a new era of digital financial reporting.

Much of the information contained in this blog is summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the three documents on this digital financial reporting page.

Campaign to Improve Disclosure Quality of XBRL-based Public Company Financial Reports Submitted to the SEC

I am leveraging the success of my informal campaign to improve the high-level fundamental accounting concept relations of XBRL-based financial filings submitted by public companies to the SEC.  I am starting a new informal campaign to improve the quality of disclosures.  This is a great learning opportunity.

Between March 2015 and August 2017 filing agents and software vendors were able to reduce the number of errors related to the reporting of basic, fundamental high-level accounting concepts in XBRL-based financial reports from approximately 4,463 to 1,059.

These errors related to reporting high-level facts such as Assets, Liabilities and Equity, Revenues, Net Income (Loss); about 75 or so facts on average. During that period, there were four filing agents/software vendors which had tuned their processes to deliver 99% or better consistency with my basic set of business rules that uses automated processes to detect logical, mathematical, consistency, and continuity related issues within and between these high-level fundamental accounting concepts.

The errors I detected are generally not disputed because they relate to logical and mathematical relations between concept defined by US GAAP, evidence exists within public company financial reports of these relationships, about 99.02% of the actual reported facts within XBRL-based reports are consistent with and therefore support the machine-readable business rules used in my processes, and 88.2% of public companies are consistent with and support all of the business rules used to evaluate reports.

All of this information is publically available on my blog.  Anyone can verify or dispute issues by simply looking at any XBRL-based financial report of a public company. I have created summaries that professional accountants can use to examine and understand these errors.

The most important benefit realized from taking these measurements, building rules, and detecting these errors is an excellent understanding of XBRL-based financial reports and what makes them work. Currently, the best understanding of these reports seems to exist within the processes and procedures of four institutions that have been able to create repeatable, reliable processes of creating financial reports that are 99% or higher in consistency with these fundamental accounting concept relations: 

  • Merrill
  • RDG Filings (Thunderdome software)
  • Donnelley Financial Solutions
  • DataTracks  

There are several other software vendors/filing agents that are closing in on repeatable processes that yield high-quality results. How to build repeatable processes that yield high-quality results can be learned.

Building on what I have learned from the measurement of the fundamental accounting concept relations; I am embarking on the next step in my systematic, methodical, deliberate, rigorous journey to understand and be able to create high-quality XBRL-based financial reports: the disclosures.

A grass-roots, market-driven, informal effort to improve the quality of about 65 specific disclosures in the 10-K financial reports of public companies which are submitted to the SEC in the XBRL format will take place during this years "10-K filing season" during December 2017, January 2018, February 2018 and March 2018.

A few software vendors/filing agents already have a jump on others and are improving 10-Ks which will be filed during Q4 of 2017.

What I am trying to do is disseminate information to as many professional accountants, particularly certified public accountants, as possible so that they can better understand the subtleties and nuances of XBRL-based financial reports. This will help the institution of accountancy leverage this useful tool which the SEC has helped to create and is helping to make a real, reliable, working, knowledge media. Analysts also need to understand the subtleties and nuances of such reports. Software engineers creating software need to understand.

The use of this knowledge media will go beyond financial reporting but will be built upon the successful use of XBRL for financial reporting.

Here is information that is helpful in understanding this campaign: 

This is a HUGE learning opportunity.  You will get out of this in proportion to what you put into it.  Because Donnelley Financial Solutions, Merrill, RDG Filings and DataTracks did so well to get their filings free from the fundamental accounting concept relations continuity cross check errors, I am very motivated to help them continue on and get their disclosures to the same 99% consistency that they were able to achieve.  But, I will help anyone that shows true effort.

What I am doing here in no way takes away from what the XBRL US DSC is doing.  It supplements that work.  The more rules the better because the more rules, the more than can be automated.  The more that can be automated; the more machines can augment human effort…just like a calculator augments a humans capabilities to do math.

If you are unclear where I am going, I would suggest that you read or reread this document:  Getting Ready for the Digital Age of Accounting, Reporting and Auditing: a Guide for Professional Accountants.

The enemy is not each other.  The enemy is the status quo.  If you want to expand your market from the 10,000 public companies that are REQUIRED to use XBRL-based digital financial reporting, to the 26 million private companies in the US that might WANT to leverage XBRL-based digital financial report capabilities; you MUST make it better than the current old school approaches that they use.  If XBRL-based reporting does not fundamentally work, that will never happen.

Once the initial batch of 65 disclosures are tuned; I will add the next batch of 500.  Then the next batch of 2,000.  I really have no idea how many unique disclosures there are, but I will find out.  I suspect somewhere between 2,000 and 5,000 perhaps.  But between now and March 31, 2018 I will focus on the 65 easy targets.

If you want to join the XBRL-based digital financial report study group, please contact me.

If you want additional information, feel free to contact me.  Follow my blog for information flowing from this grass roots campaign.

Analysis summaries:

IASB Chairman: The times, they are a-changin’

Chairman of the International Accounting Standards Board Hans Hoogervorst delivered a speech on the future of corporate reporting.

In that speech the chairman said the IASB is ready to adapt to the changing world of corporate reporting by increasing the communication effectiveness of the financial statements, facilitating electronic consumption of financial data and by promoting integrated reporting (including social responsibility reporting and environmental sustainability reporting.

Maybe it is time for professional accountants to get ready for digital financial reporting, accounting, and auditing.

In that speech, the chairman made these comments about the IFRS XBRL Taxonomy and digital financial reporting (emphasis was added):

Better formatting of the primary statements should also facilitate digital reporting.  This brings me to the third element of Better Communication, which looks at the changing nature of the consumption of financial information. Increasingly, investors are using electronic means to digest financial information, often produced by data aggregators. To enhance the quality of electronically provided data, it is imperative that the IFRS Foundation continues to develop its IFRS Taxonomy.

The IFRS Taxonomy is already used by a wide variety of market participants and regulators. It is on the verge of making a new quantum leap. The US Securities and Exchange Commission has recently mandated the IFRS Taxonomy for the filing of company reports by foreign private issuers. The European Securities and Markets Authority (ESMA) is looking to do the same in Europe; a proposition that seems to be broadly supported by influential ESMA stakeholders.

I think these developments can do much to improve the accessibility of digital financial information to investors. In addition, it can contribute to improving the quality of IFRS information in the data provided by, for example, the data aggregators. In turn, once regulatory filings become digitised, this will open up a wealth of information about how IFRS Standards are used in practice. The feedback from regulatory filings might inform us, for example, on the formatting decisions we need to take in our project to improve the Primary Financial Statements.

 

Posted on Saturday, September 23, 2017 at 07:09AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Quarterly XBRL-based Public Company Financial Report Quality Measurement

The graphic below shows the results of my quarterly fundamental accounting concept relations continuity cross checks of XBRL-based financial reports of public companies which are submitted to the SEC.

I have been measuring specific fundamental accounting information of public company XBRL-based financial reports being submitted to the SEC for going on four years now.  The quality of the information reported continually increases each time measurements are taken, which is a good sign.

But now in addition; what I am seeing is a specific set of filing agents/software vendors which have repeatable processes which are beginning to consistently yield high quality results per my specific measurements.  In the graphic below you can see that Merrill, Thunderdome (RDG Filings), Donnelley Financial Solutions, and DataTracks each are creating 99% of the XBRL-based public company financial reports which are completely consistent with my full set of fundamental accounting concept relations continuity cross checks.

Those four filing agents/software vendors represent almost 30% of all public company filings to the SEC. Another four filing agents/software vendors are closing in on 99% of all their XBRL-based reports being consistent with these basic accounting relations.

This is NOT to say that entire reports are correct or that 99%, which is only approaching Sigma Level 4, is sufficient.  My view is that the appropriate quality target is Sigma Level 6 which equates to 99.99966%.  The important piece of information, I believe, is that reliable and repeatable processes are beginning to appear from multiple software vendors/filing agents.  That statement is verifiable using empirical evidence of 100% of the filer population.  This provides good information about what it takes to get XBRL-based reporting which uses the full power of extensibility offered by XBRL to work reliably and predictably.

People might want to reach out to these software vendors/filing agents to see how they achieve these results.

(Click image for larger view)

Beginning in one or two quarters I will be adding additional measurements to my battery of testing. Ultimately, the goal will be to measure an entire report so that defects can be reduced to that Sigma Level 6 target.

Additional Disclosure Analysis Brainstorming

So I am in brainstorming mode, trying to figure out how to communicate the information I am trying to communicate.  Here is a disclosure analysis summary which contrasts how different public companies reported the Level 3 Disclosure Text Block and the Level 4 Disclosure Detail for various disclosures.  Currently I only have 2 disclosures, but I will build that up to around 75.

This is the summary of which disclosures I will be testing in machine readable form. This blog post explains things in more detail.

I will leave it at that for now.  More information coming soon.

Posted on Saturday, August 19, 2017 at 08:45AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint

XBRL Contributed to Detecting and Correcting Accounting Error

So here is a documented case where XBRL contributed to detecting and correcting an accounting error. Click on the image below to get a larger image after you read this.  In this public company's March 31, 2017 income statement (on the LEFT) they ordered their income statement line items one way.  Then, in the June 30, 2017 income statement (on the RIGHT) they ordered them a different way.

The NEW way is consistent with literally all public companies that report these line items and consistent with the US GAAP Financial Reporting XBRL Taxonomy.  The OLD way was not.

(Click image for larger view)This inconsistency was detected using the fundamental accounting concept relations validation continuity cross checks. Now, they still don't have their XBRL-based representation correct.  They have some concept selection issues that need to be fixed.